CHK - $29.04 Chesapeake Energy ** No Stop **
CHK reported earnings that were less than expected due to hedging agreements in place to cover secured payments for prior acquisitions. These were non-cash losses impacting the bottom line but investors were disappointed they were not reaping the full benefit of current prices. CHK said the agreements would run their course in 2006 and they were benefiting from the current prices on current new production.
The drop in gas prices late last week saw CHK briefly break support at $29 to trigger our breakdown entry. The insurance put was NOT triggered as CHK has yet to trade at $28. The tail on the 15:28 candle was a bad tick not an actual trade.
This play has a very good chance of being a long-term play. The insurance put at $1.80 at Friday's close is cheap insurance good until April giving us a long-term chance at higher prices over the winter.
Chesapeake Energy Corporation is an oil and natural gas exploration and production company engaged in the acquisition, exploration and development of properties for the production of crude oil and natural gas from underground reservoirs and the marketing of natural gas and oil for other working interest owners in properties that it operates. The Company's properties are located in Oklahoma, Texas, Arkansas, Louisiana, Kansas, Montana, Colorado, North Dakota and New Mexico. The proved oil and natural gas reserves as of December 31, 2004 were approximately 4.9 trillion cubic feet of gas equivalent (tcfe). At December 31, 2004, approximately 89% of the Company's proved reserves (by volume) were natural gas, and approximately 70% of its proved oil and natural gas reserves were located in the primary operating area, the Mid-Continent region of the United States, which includes Oklahoma, western Arkansas, southwestern Kansas and the Texas Panhandle.
2007 $35 LEAP VEC-AG @ $4.00
Entry $29 (11/04)
UPL - $53.25 Ultra Petroleum ** Stop loss $48 **
UPL traded up to trigger our $55 breakout entry on Wednesday and traded as high as $56.15 on Thursday before giving in to profit taking on Friday to close at $53.25. The -$3 dip took it back to light support at $52-$53 and we should see a bounce from here unless oil prices crash on Monday.
As with any oil stock today we are hostage to the price of oil even though UPL is primarily a gas producer.
I know at least one reader took the option to sell a put rather than buy the expensive calls. This is no more risky than buying the stock as long as you cover it with a long put at a lower level. It would be hard to imagine any event that would send UPL drastically lower given their outstanding earnings but I am sure the Refco shareholders felt the same way a month ago. The object of selling the put is to buy it back later for a lesser amount. By selling the option the excess volatility premium works for you rather than against you. Try this experiment. Pick a stock with a decent uptrend and price a put $10 in the money (higher than the stock price) and a call at the same strike. Make a note to check back a month from now and check on the prices of both. I would bet the put has decreased in value more than the call has appreciated. Try to price both at the end of a day with no material stock activity. Obviously a multi dollar gain or loss on any given day will skew the option price for one or both options.
Headlines from their earnings on Oct-26th:
Ultra Petroleum Corp. is an oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and gas properties. The Company's operations are focused in the Green River Basin of southwest Wyoming and Bohai Bay, offshore China. During the year ended December 31, 2004, it owns interests in approximately 166,974 gross (92,997 net) acres in Wyoming covering approximately 260 square miles. The Company owns working interests in approximately 241 gross productive wells in this area and is operator of 41.5% of the 241 gross wells. Through Pendaries Petroleum Ltd., it is active in oil and gas exploration and development in Bohai Bay, China. The Company also owns interests in 15,518 gross (14,652 net) acres in Pennsylvania, as well as interest in approximately 720 gross (320 net) acres and interests in three productive wells in Texas.
MARCH $60 Call UPL-CL @ $5.20
No insurance put
Entry $55 (11/02)